A Stealth Tax on Wages

From the Nation:

All three components of Bush's tax strategy rely on tax-advantaged private savings accounts to pay for services that formerly came from the government or employers--in this case, employee health care and retirement benefits. In all three plans, as well, individuals could pass on the assets to their heirs when they die. Taken together, these changes will allow affluent Americans to shelter hundreds of billions of dollars a year from taxation, effectively rolling back much of the progressive structure that was implemented beginning with the income tax ninety-one years ago.

How does this work? With more and more capital income--from savings and investments--shielded from taxation, that leaves generally less affluent workers to shoulder most if not all of the burden of paying for government out of their wages. "One of the goals long-term is to have the lowest taxation on capital income as possible," explains Eric Engen, a resident scholar at the American Enterprise Institute--"not just another tax decrease across the board."

But Bush's piecemeal approach to eliminating taxation of saving and investment is bound to make the tax code more complicated, not less--which some say might be just what the Administration has in mind. Conservative economists have long promoted consumption taxes as a way to encourage saving, even though they fall most heavily on lower-income workers. Leonard Burman, a senior fellow at the Urban Institute, says the Bush tax strategy is a first step to replacing the income tax with consumption taxes. "They're going in through the back door, moving to wage taxation by messing up the income tax code so that it's unfair and inefficient--not just unfair." That will open the way for the White House to eventually propose junking the whole system in favor of a consumption tax, he predicts.

Beware Greeks bearing gifts. And stupid Presidents.

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